Eterna Plc, an integrated energy company that manufactures, markets and distributes lubricants, supplies chemicals, trades in crude oil among other services, is to issue N10 billion 270-day commercial paper (CP). In a notification to the Nigerian Stock Exchange (NSE), yesterday, Eterna Plc said the funds raised would be used for working capital and general corporate purposes.
CPs, which are unsecured promissory notes with a fixed maturity of about nine months are issued by companies to raise money to meet short term finance obligations. The notes are backed by the promise of the issuers to repay based on certain agreed terms. They present a cost-effective and stable means of sourcing scarce capital as against to bank loans and provide investors avenue to diversify their portfolios and given their short-term nature, they permitting high relative return on investment, and allow investors to remain relatively liquid.
Many companies have resorted to issuance of CPs to raise funds in recent times. An investment banker and Co-founder of Cardinal Stone Partners Limited, Mr. Mohammed Garuba told THISDAY in an interview that CPs had increased largely because the banks have refused to drop interest rate.
According to him, depositors are seeing very low interest rates. CP in any market is a rate higher than deposits rates, but lower than bank interest rates. So, the CP market is getting very viable now because depositors instead of going to banks to deposit their monies are going to the companies to invest in CPs. So, the more CPs we get, the possibility of banks coming to do their roles of intermediation,” he said.
He said CP market is the way to go, stressing, “even the banks are doing CPs. If I have some bad loans, one way to manage it is to take CPs and use it to reduce it. Every normal company is going to continue to do CPs until banks go back to their intermediation role. People are taking their deposits from banks and investing in CPs at slightly higher rates as opposed to doing fixed deposits with the banks.”
Meanwhile, trading at the stock market turned bearish yesterday as the NSE All-Share Index fell by 0.08 per cent to close at 32,417.70, while market capitalised closed lower at N11.85 trillion. The depreciation recorded in the share prices of companies such as Unilever, Access Bank, Nigerian Breweries, Flour Mills of Nigeria, and International Breweries were mainly responsible for the decline recorded in the index.